Effect of Trade Liberalization on Production, Consumption and Trade of Rice

Globalization is an inevitable process that one of its consequences is the liberalization of trade and the reduction of protectionism. Trade liberalization causing the heavily interdependent economics of the countries around the world to reduce customs and trade barriers to a minimum level, and make financial transfers between countries easily done. Rice is the most important and strategic crop after wheat and plays a significant role in trade and food security of the world and Iran. Because it provides more than 20% of human total daily calories and Almost two thirds of the world's population depends on rice for food. The total Production of Rice in Iran during 2012-2013 was about 2.3 million ton and about 93% of rice products are yielded in Gilan, Mazandaran, Khuzestan, Golestan and Fars provinces. About 88% of total production of rice in Iran is allocated to domestic consumption while just 12% of goes to the world market. Total consumption of rice in Iran is about 3.2 million ton.   The model that is used in this study is Agricultural sector partial equilibrium model with endogenous prices. The data used in present study are the average of production, consumption, export, import and area under cultivation quantity, which export and import prices for long, medium and short grain rice and import tariffs for two growing years of 2011-12 and 2012-13 are considered. These information are provided from agriculture jihad organization of Iran, Customs Office of the Islamic Republic of Iran and the book of export-import regulations. In current research, at first simple linear demand function is calibrated for long, medium and short grain rice based on demand price elasticity. The supply function involves two parts: domestic supply function and export supply function. The calibration of domestic supply is done by a Maximum Entropy integrated PMP method and calibration of export supply function is based on export supply price elasticity. It should be noted that the demand elasticities used in current study are captured from various studies and the export supply elasticities are taken as unity following Aydın et al (2004). Constraints that are used in the model are comprised of the constraints of area under cultivations, water, chemical fertilizer, variable costs, constraint of commodity balance and constraints of calibration includes area under cultivation and export.   The investigated scenarios are the reduction of import tariffs for rice by 10, 25, 50, 75, 90 and 100 percent. The results of present study showed that The area under cultivation of long and medium grain rice, compared to the base year (2012 and 2013 will decrease about 0.61 and 3.38 percent), in Mazandaran province, about 0.49 and 9.18 percent in Gilan province, about 2.82 and 4.32 percent in Golestan province , about 90 and 0.6 percent in Khuzestan province and about 24.47 and 2.47 in Fars province t. Short grain rice in Golestan province will decrease about 22.93 percent and in Fars province will decrease about 43.33 percent. Generally, with decreasing tariff rates, the long, medium and short grain rice, compared to the base year (2012 and 2013), will decrease about 21.5, 4 and 11.5 percent, respectively. Also, the consumption of long, medium and short grain rice will increase by 0.5, 1.1 and 0.7 percent, respectively. The average import of long, medium and short grain rice will increase by 5, 11 and 33.5 percent, respectively and Exports of long, medium and short grain rice also will increase by about 7.7%, 11.7% and 11.43% as a result of tariff cuts. Also, the net social welfare due to the reduction of rice tariff rates relative to the base year, will increase about 0.2 percent. The average welfare of consumers will increase about 1% and the welfare of producers will decrease about 1.7 percent compared to the base year. Also the welfare of the state will increase about 9.5 percent compared to the base year.   Considering small cultivated pieces of land, the high cost of production, the lack of relative advantage in the production of some types of rice and also the high waste of factories in the country, trade liberalization can be fruitful. Considering the importance of product advantages in producing, exporting and importing as well the best quality of Iranian rice, creating new technologies and new planting methods such as hydroponic cultivation, which leads to increased performance and increased water productivity per unit area, and also planting kinds of rice which have advantages in each province would conclude increasing the welfare of rice producers.